Estate Plan Protects Widow From Son's Breach of Fiduciary Duty

The near epidemic of financial exploitation of the elderly and infirm came into sharp focus in the Massachusetts Appeals Court’s decision on Nov. 2, 2016 involving the guardianship of Alice Migell, a nursing home-bound 83-year-old widow. (Guardian v. Migell, 2016 Mass. App. Unpub. LEXIS 1056 (Nov. 2, 2016)) On behalf of Alice, a complaint in equity was filed against her son and daughter-in-law to recover over $2.5 million in assets after an investigation by the local protective services agency revealed that Alice was the victim of a scheme to strip her of everything.

Alice’s son, Andrew, and his wife, Kai, failed to win reversal of judgments holding them guilty of criminal contempt of court and recovering real estate and money that they’d taken from her. A key aspect of the case was the fiduciary relationship that Andrew and Kai had created toward Alice. Andrew was a trustee and acted under a power of attorney for Alice. Both Andrew and Kai boasted about how they did everything for Alice because she couldn’t take care of herself. They tried to use that relationship as a justification for, if not entitlement to, keeping proceeds from selling property held in trust and receiving outright conveyances of other valuable real estate. As discussed below, this proved to be their undoing under the Massachusetts rule for burden shifting in transactions that benefit a fiduciary.

Disturbing Basic Facts

Alice’s husband Bruce died in 2006, while she was hospitalized. They’d been married for over 40 years and had amassed a sizeable estate. Alice is the primary beneficiary of Bruce’s estate. The Appeals Court agreed with the trial judge that Andrew “had a plan to obtain transfers of property Alice owned or reasonably expected to inherit.” Several valuable real estate properties were owned in a nominee realty trust with Bruce as sole beneficiary. Andrew was a trustee but obtained a transfer of beneficial interest from Bruce shortly before his death. Investment properties in New Hampshire and Florida had also been held in the nominee trust, but Andrew sold them and kept the money. Alice held title to a vacation home in her name. Two other properties that Alice owned when Bruce died were deeded over to Andrew shortly after Bruce’s death, which the guardian was able to recover outside of the lawsuit.

Appeals Court Ruling

The Appeals Court upheld the trial court’s decision to restore title to the real estate and order Andrew to turn over the sale proceeds. The court also agreed that the trial judge properly found Andrew’s wife, Kai, to be liable since she received some of the property or use of the sale proceeds. Indeed, Andrew had reconveyed one property to himself and Kai. As a result, transfers of title that rendered Alice essentially destitute were reversed, so that she’ll benefit from Bruce’s estate as he’d intended.

Alice’s Standing

Andrew and Kai’ argued on appeal that Alice had no standing because she didn’t own the properties at issue in the trial. The Appeals Court held otherwise, concluding that under Bruce’s estate plan, his widow was intended to be its primary beneficiary. The facts clearly established that Andrew worked continuously on his plan to deprive Alice of her expected inheritance, giving her standing to recover it. Accordingly, the equitable relief to restore these assets was proper. It should also be noted that courts of equity have extraordinary latitude to grant relief for protected persons, such as those under guardianship and conservatorship like Alice.

Fiduciary Relationship Shifted Burden of Proof

On appeal, just like they did at trial, Andrew and Kai argued that there was insufficient evidence against them for Alice to gain back the property and money. The Appeals Court, however, agreed with the trial judge’s determination that both Andrew and Kai stood in a relationship of trust and confidence toward Alice. Although they were defendants in this action, and so wouldn’t ordinarily bear the burden of proof, the finding of a fiduciary relationship shifted the burden of proof so that Andrew and Kai were required to prove that challenged transactions weren’t the burden of fraud or undue influence.

Andrew and Kai didn’t appear at trial or offer any testimony concerning the challenged transactions so the record was barren of any evidence that could show these challenged transactions were proper. It was incumbent on the defendants, as a result of burden shifting, to demonstrate the circumstances of the transactions and their intended benefit to Bruce. As a matter of common sense, although the Appeals Court decision is silent on this point, one is left to wonder where such evidence could have been obtained.

Criminal Contempt

The judgment to recover the assets followed an earlier decision, also affirmed by the Appeals Court, sanctioning Andrew and Kai for more than $550,000 in expenses that Alice incurred to defend against the “plan” to divert to Andrew and Kai all that Alice had, and so render her destitute. That judgment included an injunction freezing Andrew and Kai’s assets until Alice has been made whole.
Andrew filed for bankruptcy shortly after the Appeals Court upheld that judgment in 2014. During the bankruptcy case, which was ultimately dismissed, it became apparent that Andrew transferred ownership in a real estate investment property to Kai and their daughter and that both defendants put a homestead declaration on a second property. The obvious intent was to shield these valuable assets from being reached to satisfy the judgment.

Both Andrew and Kai were found guilty of criminal contempt, with Andrew receiving a 45-day jail sentence and Kai receiving 250 hours of community service. They appealed, essentially arguing that what they did wasn’t so bad, didn’t harm Alice and wasn’t willful. If anything, the argument went, a finding of civil contempt was the most that should have entered against them.

The Appeals Court rejected all of these arguments. Clearly, each transaction violated an injunction that forbade any transfer of assets, and the violations were willful because the defendants volitionally committed the acts on which the convictions were grounded. Indeed, both Andrew and Kai showed contempt for the court’s authority, such as by Andrew’s “flippant statements” about the transfer of the investment property to Kai and their daughter and the timing of the homestead declaration that occurred just days after their appeal failed.

Takeaway for Estate Planners

The two sets of judgments, and the findings that support them, document a chilling tale of greed and abuse in which a son and his wife engaged in what the judge described as a ruthless campaign against his own mother – all after money and property. The trial court record reveals work by an elder protective services agency and a court-appointed guardian ad litem that uncovered the scheme and the extent of its success.

Bruce’s estate plan was a key element to success in the case. It laid the foundation for Alice’s standing and documented what Alice had every right to expect should Bruce predecease her – financial security especially at a time in her life when she couldn’t provide for herself. For estate planners working with the elderly, who may not appear to face the catastrophe that Andrew and Kai had in store for Alice, it’s important to anticipate a client’s exposure to the risks of being exploited and to watch for signs of it. These signs include isolation of the client, and in the case of long-term clients, a sudden change in counsel or accountant. An annual estate check-up is a good tool for this. If concerns arise, even (or perhaps especially) if the lawyer is discharged, a referral to elder protective services could literally help to save the client.

Robert J. O’Regan is a partner with Burns & Levinson, LLP in Boston, where he’s a member of the Private Clients and Business Litigation Practice Groups. O’Regan was the appointed guardian for Alice Migell, who he represented in the Middlesex Probate and Family Court and before the Massachusetts Appeals Court.